The Best—and Worst—States for Small Business in America

A survey of 12,000 business owners discovers what states and cities are the most and least hospitable to small businesses.

Own a business in Texas or Virginia? You apparently have it good—much better than business owners in California or Illinois.

A new study looks at which states and cities are friendliest to small business, rating them on criteria such as ease of hiring, regulatory hurdles and tax rates. Conducted by Thumbtack.com in partnership with the Ewing Marion Kauffman Foundation, the study is based on a survey of about 12,000 small business owners who rated their location on various factors.

The survey found that Texas, Idaho, Utah, Louisiana and Virginia are most hospitable to small businesses overall, while California, Illinois and Rhode Island have the least-friendly environments.

Cities deemed most welcoming to businesses include Boise, Idaho; Houston and Austin, Texas; Colorado Springs, Colorado; and Louisville, Kentucky, while the least-friendly cities were Buffalo, New York; Providence, Rhode Island; and Sacramento.

The states and cities received letter grades on the various traits. Florida received an A-minus for its tax code, but got a C for “ease of starting a business.”

The researchers said the idea behind the study is that state and local regulations, taxes and policies can greatly affect a small-business owner’s odds of success.

"It is critical to the economic health of every city and state to create an entrepreneur-friendly environment," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation, in the study’s description. "Policymakers put themselves in the best position to encourage sustainable growth and long-term prosperity by listening to the voices of small business owners themselves."

Certain factors, however, played a bigger role in the overall friendliness results. For example, professional licensing requirements was huge in determining a state’s overall friendliness rating, while tax rates were less of a factor.